I don’t trust financial advisers. I’m not entirely sure why but I inherently do not trust experts in any non-science field and I have my fraud radar on red alert if it has anything to do with money.

I separate financial advisers into two categories – those that help you plan and those that help you invest. I see some value in the ones that help you plan for the future. You sit down with the planner, list your financial goals, and come up with a financial plan that helps you achieve those goals. They provide another perspective on your situation and can give advice as to what has worked for others and what has not. While I’m sure that’s a simplification, that’s the basic idea.

Then there are those who help you invest. They can recommend a basket of investments to help you achieve your goals or they directly manage your money. The advantages of using an adviser like this is that you can stay hands off while they invest your money on your behalf. They can do the research, buy a diversified portfolio, and help you an area you may be weak in. Whether they’re fee only and provide only direction or commission, where they earn a percentage of assets, the end result is that you’ve outsourced the work.

So why do I not trust them? First, I don’t think I need someone to help me plan our financial future. While I’m certainly not an expert on the subject, I feel that sitting down and setting a plan with an “expert” isn’t going to be any better than if I sat down with a book on financial planning. As for giving my money to someone or taking the advice of an adviser for investing, I don’t see how that beats going with a mutual fund. Since they don’t have a crystal ball, are their recommendations going to beat a mutual fund managers? If I go safe with an index fund and opt for a lazy portfolio, will I really be that far behind? If the majority of actively managed mutual funds, staffed with the best and the brightest working on this 24/7, can’t beat the index… can an adviser?

Let me know what you think, hopefully I haven’t kicked over a hornet’s nest! (or maybe it’s good if I do, I don’t know what I don’t know so I’d love to hear another perspective)

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38 Responses to “Your Take: Do You Trust Financial Advisers?”

Financial advisors have one thing on their mind making money for them and you are correct they will tell you nothing you can’t find out for yourself in a relatively short time.
Also one thing is for sure any package they sell you i.e. insurance plans etc. will be loaded at the beginning so you have to pay for a long time before you even start to make an investment.
Seriously you could watch Bloomberg TV for a couple of weeks and make equally informed choices yourself and build a portfolio which will perform as well as theirs if not better and no set up costs, also you have the choice to take it out when the market is greedy and wait for the inevitable correction and bingo in you go again, it takes up a short amount of your time and is really a lot of fun.
Just remember the old adage get out early if you spend your life disappointed that you took your stocks out early then you will make money.

Does the writer trust that his dentist is choosing the best treatment for him or the dentist? Or the mechanic the least expensive repair. Everyday we make decisions based on what professionals in every industry tell us. Some are honest pros others are con men.

Think you know how to plan your financial future better than a professional who has spent countless hours learning about tax structure, insurance, investments, legal and medical risks.

Now are we supposed to invest years of learning and give it all away because someone doesn’t want to pay a commission? Not anymore than a doctor will give you a free operation.

I meet people like this frequently and the real joy of being an insurance agent is when I expose their ignorance of their own finances to them.

I might be wrong but…. if a financial planner was a guru why would they be sitting behind some desk working at some firm? Get it… if you can pick’m, you’d be loaded! You wouldn’t be sitting behind a desk peddling your services to the masses. Just my thought…

1,2 , 3 or 4% difference year on year.. sure does add up if you understand time value of money … I think there is a big difference between an advisor investing money for you and an advisor who wants to sit down and understand your goals first….

The problem with index funds is “Geometrical Mean” for the researchers in the group. If you lose 50% one year, it then requires 100% gain just to get back to even. So, its not always about “beating the index” its about limiting downside risk. When the market goes down 50, and the pro’s only lose 30, over time that adds up.

As far as 4% upfront fees vs no fees, doesn’t it make sense to pay 4% in yr. 1 on 100k investment and no fees along the way, no fees to change funds, and no fees to get out….or more sense to pay .85% in c shares every year on a growing portfolio for 30 years??

Investments are like tools. If you try to drive a nail with a saw, its probably going to produce less than desired results. If you try to cut a board with a screwdriver, same result.

Using a good financial advisor who has spent years getting a finance mba,CFP and hundreds of hrs a month staying up to date on current tax laws, opportunitys like the roth conversion, estate planning advice etc etc. can be very helpful. Not to mention, large wirehouses have access to bond inventory and other products at rates discounted vs. what the retail consumer pays.

And as the post above said, you don’t expect to get an operation for free, or even more simple…even a free car wash…why would you expect me to give away 20 yrs of education for free? I agree fees are best to avoid, but if I charge .5% and my returns are 2% higher than the market and I save you literally hundreds of hrs of time….I deserve to be compensated.

Final though…im sure I can mow my yard and edge with the best of them, but for the 20 bucks I pay once a week, its worth the 4hrs and pain in my ass it saves me!

Like Javi, I am horrified at what financial planners have done for my parents.

My parents inherited a modest amount of money from my grandfather. Not being familiar with investing, they consulted a financial adviser. The adviser did not encourage them to invest the money over several months or talk to them about the tax advantages of IRAs. Instead, she simply told them to put their money in a fund that came with a 4.75% front load.

Disgusting.

John, no index fund should be charging an expense ratio of .85%, and you haven’t supported your claim that the pros do better than the market on the downside. I certainly haven’t seen that in my parent’s case.

Sarah, Im sorry to hear your parents had a poor experience. I am not however arguing pros such as your local ed jones or merrill advisor do it better than an index fund. I am referring to pros such as Bill Gross and Jeremy grantham. You are correct, if given the option of buying a vanguard large cap equity fund vs. paying an advisor 1.5% to pick individual large cap equities for your portfolio, the lower fee account wins 100% of the time. My point was this: Studies have shown that over 90% of portfolio returns come from asset allocation and only 10% from individual security selection. If you are smart enough to know what percentage to put in stock vs. bonds. vs large, mid and small cap vs. domestic, foreign, currency, comodities etc. etc…..then sure, pick your vanguard funds and move in and out of them at the perfect time and save .5%. Reballance weekly yourself oh and at the end of each year calculate the capital gains and losses of every individual fund you own and sell in an efficient manner to harvest all the losses to offset the gains. Oh, and make sure you have enough money to invest in 5-10k securites to make sure you are well diversified.

My point is this, just because one advisor didnt know what he was doing doesn’t mean the rest of us who do aren’t better than an index fund.

Back to your 4.5% statement…If they planned to buy that position and hold it for 20 years, a 1 time fee upfront on the lower value makes sense. If it was short term money, I would be pissed. the .75 number came from the difference in return from a 4.5% A share fee vs. the no fee C share.

After being a financial advisor for more than 30 years, I am consistantly amazed. People think that its a product that is the financial solution. Some people accuse us FA’s of not looking out for the client. While I agree that there are good ones and bad once out there, here is what I got to say. I am a trusted advisor. Why, because I have a financial tool that most people never hear of. A financial simulator! I also have the ability to reduce financial risk. I teach people how money works.
Nobody should ever have to worry about the stock market and the risk. It’s the transfers of wealth through unintended consequenses that if reduced or eliminated, will increase a clients wealth. In the world of financial advisors, I guess you could say that I am a protection specialist.

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